Who qualifies for Loan Forgiveness?

Public service employees working in the above-listed fields are eligible for loan forgiveness under the Public Service Loan Forgiveness Program (PSLF), passed by Congress in 2007. The Federal government created this program to inspire young people, many of whom carry a high debt burden, to pursue careers in public service. Recognizing that big debts were preventing some of the nation’s best and brightest from giving back, this program provides an incentive for college graduates to build a career in public service.

Common Questions

What is Public Service Loan Forgiveness (PSLF) program?

An incentive for college graduates to work full-time in the public service sector ˆ i.e. police, teachers, nurses, firefighters, etc. ˆ for 10 years to qualify for forgiveness on what‚s left of the student loan debt.

How do you become eligible for PSLF?

You must be a full-time employee at a qualified public service organization and make 120 separate, on-time loan payments. You also must be in a qualifying repayment program.

What is a qualified public service organization?

Generally speaking, that refers to any city, county, state or federal government office or agency. Working for most non-profit 501 (c)(3) organizations also qualifies, unless it is a labor union, partisan political organization or engaged in religious activity.

Does this mean I have to work at the same place for 10 years?

No, you could work at multiple places, but you must provide documentation that you were working for a qualified public service organization when you made your 120 loan payments.

Will the PSLF program apply to all college loans, even private loans?

No. Private and non-federal loans are not eligible. The PSLF program only applies to Direct Federal Loans and Direct Consolidation Loans.

If I do get part of my loan forgiven, does the IRS consider that income that must be claimed on taxes?

No. The IRS does not consider amounts forgiven under the PSLF program to be taxable income.

Loan Forgiveness Checklist

Consolidate and enroll in an eligible repayment plan. In order to receive loan forgiveness under this program, you must first consolidate an enroll in an eligible repayment plan. Not all repayment plans qualify for this program. If you’re income is relatively low, compared to your debt, you will save the most money by choosing an income-based repayment plan. For help determining the lowest possible monthly payment on a qualifying plan, contact a Student Loan Peace specialist.

Verify your public service employment status with the Department of Education. Because your loan forgiveness depends on your field, you’ll need to certify your employment with the DOE. It’s best to do this every year.

Make 120 on-time payments. Debt forgiveness is provided after you make 10 years of on-time payments, on a qualifying repayment plan (see item #1).

Public service workers with high student loan balances relative to their income can benefit by consolidating and choosing income-based repayment. To learn more about your options, call today.

Frequently Asked Questions about Loan Forgiveness

Can my loans be forgiven if I declare bankruptcy?

With rare exception, student loans cannot be discharged in bankruptcy court. Many people who complete bankruptcy must continue to pay on their student loans. If your student loan payments are unaffordable, consider consolidating under an income-based repayment plan for a lower monthly payment.

I’m eligible for Teacher Loan Forgiveness ($5000 for teaching in a low-income school, $17,500 for teaching math, science or special education). Can I receive this forgiveness and Public Service Loan Forgiveness?

If you accept loan forgiveness under the Teacher Loan Forgiveness Program ($5000 or $17,5000) after five years of qualifying service, the 10 year clock for Public Service Loan Forgiveness starts after you receive your Teacher Loan Forgiveness award. You cannot be enrolled in both forgiveness programs at the same time. If you have a high balance, it may be a better idea for you to skip the Teacher Loan Forgiveness grant, and have your entire remaining loan balance waived after 10 years (versus 15).

What if I leave my public service employment before 10 years? Can I have part of my remaining loan balance waived?

No. You must complete 10 years of employment as a public servant. These years do not have to be consecutive.

Is the forgiven balance taxable?

Student loan balances that are forgiven under the Public Service Loan Program is not taxable.

Author: Karen Carlson

Karen Carlson is personal finance expert and writer. Her financial advice has been published in Time, US News & World Report and Fox Business News. Carlson is an Emmy Award-winning producer of educational television and recent nominee for the NFCC Financial Educator of the year award.